Dec 03, 2009
February 21, 2008
Wildfire Roadmap to Recovery: Meeting #8, February 21, 2008 Rancho Bernardo Community Presbyterian Church Tax Issues: Personal Property & Real Property
Fine print: The information provided in this program is intended for general educational purposes only. It should not be construed as legal advice. The speakers at today’s program are volunteering their time as educators.
Neither United Policyholders nor the Rancho Bernardo Community Presbyterian Church endorse or warrant the quality or services of any volunteer speakers.
Income Tax Issues & Real Property Tax Issues
Background: For ’03 Cedar Fire Survivors, there was much confusion/misunderstanding regarding both of these issues
Knowledge is power… THANK YOU TO TONIGHT’S SPEAKERS FOR HELPING EVERYONE AVOID COMMON PITFALLS
Jeff Olson, San Diego County Assessor’s Office
Income Tax Implications – Alan Clopine, CPA On 10/29/07, the IRS granted tax relief for Southern California Fire Victims Affected taxpayers can claim disaster-related casualty losses on their federal income tax returns in either 2006 or 2007
If you claim the disaster loss on last year’s return, put the disaster designation “California Wildfires” at the top of the form
Calculating the Disaster Loss FIRST: Determine the adjusted basis in the property before the disaster loss (generally the original purchase price PLUS improvements LESS depreciation deducted) SECOND: Determine the decrease in fair market value of the property as a result of the disaster loss. (Appraisals of the property both BEFORE and AFTER the disaster loss are a good idea)
THIRD: From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive.
EXAMPLE: Figuring the Disaster Loss Deduction: An Example Adjusted basis of property $500,000 (A) FMV before disaster loss $850,000 FMV after disaster loss $250,000 Decrease in FMV $600,000 (B) Loss [smaller of (A) or (B)] $500,000 Subtract insurance received $375,000 Loss after reimbursement $125,000
(Note: This $125,000 loss must be in excess of 10% of adjusted gross income to receive a tax benefit ).
How To Take The Loss The Prior Example Showed a Loss of $125,000 This loss may be deducted on the taxpayer’s 2007 return (to be filed by 4/15/08) The loss may be deducted on the taxpayer’s 2006 return (file an amended return for 2006) THIS MUST BE FILED BY APRIL 15, 2008
The taxpayer decides which year the deduction is more beneficial
What If I Haven’t Received My Insurance Proceeds Yet? You should estimate the amount you expect to receive in insurance proceeds.
If you later find the insurance reimbursement was different that what you expected, you adjust your return in the year received.
Can I Have A Gain Even Though I’ve Lost My Home? Yes, if your insurance reimbursement exceeds the lower of your adjusted basis and decrease in FMV, you have a gain. HOWEVER, that gain is not currently taxable if you build a replacement property: Main home : replace within four years after the close of the first tax year in which your gain is realized
Other property : replace within two years after the close of the first tax year in which your gain is realized.
Additional Resources IRS Publication 2194 (Disaster Losses Kit for Individuals). This publication has good worksheets to help quantify your property losses. www.irs.gov IRS Publication 547 (Casualties, Disasters, and Thefts). www.irs.gov FTB Publication 1034 (Disaster Loss). www.ftb.ca.gov
Call Alan Clopine, CPA at Centara Capital (619) 398-1700. http://www.centaracapital.com/company/bio-aclopine.html
Under state law, the Assessor must reassess property upon new construction Excluded from the definition of “new construction” is any timely reconstruction where the property after reconstruction is substantially equivalent to the property prior to damage or destruction.
However, State law ALSO provides that any reconstruction that is not substantially equivalent to the damaged or destroyed property shall be deemed to be new construction and only that portion that exceeds substantially equivalent reconstruction shall have a new base year value .
Know the facts…
There has been a common misconception that calamity victims can build up to 500 additional square feet without incurring additional property taxes.
Additional square footage is subject to reassessment at market value For property tax purposes,
any square footage that is above and beyond what existed prior to the calamity is subject to reassessment at market value.
Also subject to reassessment… Anything that is built after the calamity that did not exist or was not assessed prior to the calamity is subject to reassessment.
For example: Air conditioning, additional bathrooms, patios, decks and garages
Improved quality is reassessable…
When the quality of newly constructed structures is substantially greater than that which was lost, this difference in value is also reassessable.
Construction which is above and beyond what existed and was assessed before the calamity is reassessed at market value.
Therefore, when assessing new construction after a calamity, the Assessor’s Office is required to compare the structures that were damaged or destroyed with the new replacement structures.
Assessment of pre-calamity structures… In order to receive credit for pre-calamity structures, the structures must have been present in the Assessor’s records and assessed on the property tax roll. For example, if a taxpayer lost a garage in a fire, but the garage was built without a permit and was never assessed for property taxes, no credit would be given and the rebuilt garage would be reassessed at market value.
The structures that were a part of the tax records before the calamity shall retain their original base assessment.
If you have further questions…
Contact the Assessor’s Office at (619) 505-6262
Our heartfelt thanks to: Rancho Bernardo Community Presbyterian Church All our UP Mentors and Sponsors
The speakers at tonight’s meeting
Break Out Sessions for Fire Survivors Open to 9:30 pm: Firm Stop time Allstate : Upper Courtside East USAA: Small room off lobby (see D Shalinsky)
Other Companies: Sanctuary